Leading Economic Index in U.S. Rose 0.9% in November

Dec. 17 (Bloomberg) -- The index of U.S. leading indicators rose for an eighth consecutive month in November, a sign economic growth will extend into the first half of 2010.

The New York-based Conference Board’s gauge of the outlook for the next three to six months rose 0.9 percent, more than forecast, after climbing 0.3 percent in October. Separate reports showed Philadelphia-area manufacturing grew in December at the fastest pace in more than four years, while initial jobless claims rose last week.

Rising stocks and fewer job losses are supporting consumer spending, which makes up 70 percent of the economy. The Federal Reserve said yesterday it intends to keep its benchmark interest rate near zero for an “extended period,” to spur growth as unemployment at 10 percent poses a risk to the recovery.

“The nascent recovery is ending 2009 on a high note,” said Richard DeKaser, chief economist at Woodley Park Research in Washington, who correctly forecast the gain in leading indicators. “The consumer is doing all right, housing is clearly in an upswing and business investment is improving.”

Economists forecast the leading indicators index would increase 0.7 percent, according to the median of 61 estimates in a Bloomberg News survey. Projections ranged from a gain of 0.5 percent to 1.2 percent.

Philadelphia Manufacturing

Manufacturing in the Philadelphia region expanded for a fifth month as sales and employment grew. The Fed Bank of Philadelphia’s general economic index rose to 20.4 this month, the highest since April 2005, from 16.7 in November. Readings greater than zero signal growth.

Figures from the Labor Department showed jobless claims increased to 480,000 last week from 473,000 a week earlier, indicating the labor market will take time to strengthen.

Stocks declined for a second day this week after Citigroup Inc. sold stock at a discount and FedEx Corp.’s profit forecast trailed analysts’ estimates. The Standard & Poor’s 500 Index dropped 0.8 percent to 1,100.18 at 10:20 a.m. in New York.

Six of the 10 indicators in the leading index contributed to the gain, led by the difference between short- and long-term borrowing costs and fewer jobless claims. A longer factory workweek, higher stock prices, more building permits and a rise in money supply also helped the index.

Weaker consumer expectations, faster supplier deliveries and fewer capital goods orders were a drag on the index. Consumer goods orders had no effect on the index.

Coincident Indicators

The Conference Board’s index of coincident indicators, a gauge of current economic activity, rose 0.2 percent in November after no change the prior month. The index tracks payrolls, incomes, sales and production, the measures used by the National Bureau of Economic Analysis to determine the beginning and end of U.S. recessions.

The gauge of lagging indicators dropped 0.4 percent last month. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.

The world’s largest economy probably expanded at a 3 percent annual pace from October through December after growing at a 2.8 percent rate in the prior quarter, according to the median estimate of economists surveyed earlier this month. That followed a 3.8 percent contraction in the 12 months to June, the economy’s worst performance since the 1930s.

Yield Curve

The index’s positive spread between the yield on the 10- year Treasury note and the overnight fed funds rate is based on mounting expectations of an economic recovery.

Jobless claims averaged 482,000 in November, down from 524,200 a month earlier. Building permits rose 6 percent in November, the government reported yesterday, a sign home construction is gathering pace.

U.S. stocks continued to rally last month as reports suggested the economy was stabilizing. The S&P 500 averaged 1,088.07 in November, compared with 1,067.66 in October. The index reached the highest closing level in 13 months on Dec. 14.

Weighing on the index, the Reuters/University of Michigan’s reading on consumer expectations for the next six months fell in November from the prior month.

Seven of 10 indicators for the leading index are known ahead of time: stock prices, jobless claims, building permits, consumer expectations, the yield curve, factory hours and supplier delivery times.

Federal Reserve

The Conference Board estimates new orders for consumer goods, bookings for capital goods, and the money supply adjusted for inflation.

Reiterating its pledge to keep rates “exceptionally low” for “an extended period,” Fed policy makers yesterday said the recovery is facing hurdles.

“Household spending appears to be expanding at a moderate rate, though it remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit,” they said in a statement.

Manufacturers that export to emerging economies such as China are among companies anticipating stronger growth.

General Electric Co. Chief Executive Officer Jeffrey Immelt said global orders for the world’s biggest maker of jet engines, power-plant turbines and medical imaging equipment were picking up in the fourth quarter compared with the prior three months.

“Orders will be improving sequentially as we get into the fourth quarter of the year,” Immelt said at an investor meeting Dec. 15. GE had an order backlog of $174 billion at the end of the third quarter, with total company orders of $18.4 billion in the third quarter, including service contracts.